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Let's say for the sake of an example that you major in early childhood education and will be earning about $39,000 a year. If you graduate owing $25,000 at an average interest rate of 6.80% and want to have that debt paid off in 10 years, your monthly payment will be $287.80. You will pay a total of $9,524.24 in interest and your cumulative payments will be $34,524.14. Assuming you’re single, your take-home pay after taxes as an early childhood educator will be in the neighborhood of $1124. This means the payment on your student debt would eat up almost 25% of your take-home pay, leaving just $837 a month for everything else. As you can see from this example if you follow your passion when choosing a college major, and you don't think about what it would mean to you financially, you could be spending a lot of money with not much of an ROI.
Understand the alternatives
The example given above is based on the 10-year standard student loan repayment plan that all graduating students are automatically put into. If you find your monthly payment too much to handle under this plan, there are alternatives. One of the best of these, which was just announced in 2015, is called Pay As You Earn (PAYE). It caps monthly payments at 10% of your discretionary income. Going back to our example of being an early childhood educator, you would have a monthly payment of about $112 PAYE in place of $287.80. Unfortunately, PAYE is available only to some borrowers with newer federal loans. In fact, to qualify for PAYE you need to have received your first federal student loan after October 2007 and if you received a Direct Loan or Direct Consolidation loan you must have received it after October 1, 2011.
If you can’t qualify
As a newly-minted college graduate it's likely that you would qualify for PAYE. but if not, don't despair. There is another student loan repayment plan called Income Based Repayment (IBR) that’s currently available to everybody and that caps monthly payments at 15% of the borrower’s discretionary income. Obviously, if you could qualify for PAYE your monthly payments would be two-thirds of what you would pay under IBR. In addition, if you qualify for PAYE and make all your payments for 20 years any remaining loan balance is forgiven. However, it's important to remember that having your monthly payment capped at 15% of your discretionary income, as is the case with IBR, would still be much better then under the standard 10-year repayment plan.
If you'd like to know more about IBR and PAYE, be sure to watch this short video.